Turning point

Glynn Davis looks at the latest mobile payments developments and the challenges facing banks as the m-payments/NFC bandwagon picks up pace

An overwhelming 83 per cent of executives believe mobile payments will become a mainstream activity within the next four years, which suggests the financial industry is on the cusp of great change as m-commerce has so far gained minimal traction. What is interesting is that these findings from KPMG involved surveying senior people from the financial, technology, telecommunications and retail industries. These individuals are undoubtedly knowledgeable about the various challenges m-commerce faces but despite this they clearly expect things to shortly take off.

This is very positive for the technology and echoes the view of Tom Gregory, head of digital payments at Barclaycard, who says there is a belief that “if 2011 is not a tipping point then it is a turning point.” He adds: “Payments are going up exponentially and merchants’ awareness is growing. And the handset manufacturers are all now aligned.”

This might be slightly wishful thinking as there are still some strategic issues to be sorted before things move forward with any pace, according to Sirpa Nordlund, executive director at Mobey Forum - the industry association aimed at advancing mobile payments, who says: “They all want to do it but there are some strategic issues still to be sorted as many of them are competitors.”

And it is not just the issue of mobile operators working together as the banking industry also has to work with these handset manufacturers, as well as the mobile network providers, which can be a big challenge. Stephanie El Rhomri, new services marketing manager at FIME, suggests the banking and technology sectors are very different beasts. “It poses a challenge to banks wishing to adopt NFC technology since the sectors can often find themselves out of synch. The
longevity of the financial sector’s established infrastructure compares to the short product lifetime of the telecom market, which is constantly evolving.”

But be in no doubt that it is happening and at the forefront of bringing all the camps together is Barclaycard, which is behind a pioneering move with Orange, MasterCard and Samsung. “We took the decision to drive through our innovative credentials and introduce an innovative way to pay. This led to the collaboration.”

Working together

Collaboration is certainly a word that is often bandied around when it comes to m-commerce and NFC. Giles Hingston, global product manager within global transactional banking at HSBC, says: “Collaboration is absolutely key. All the parties - telcos, banks and card schemes - will play a vital role. The involvement of established players will help any eco-system to develop.”

This highlights a widely-held view that it is unlikely a telco-led m-commerce/NFC solution or other technology newcomer offering a mobile solution will gain significant ground in the market: “The existing networks are very well established. There is a financial eco-system that is well supported. But the existing players will need to be innovative to make propositions work for their customers.”

Nordlund agrees: “Lots of parties are working together. The first mover is Barclaycard as a financial industry player and the other banks are close to doing something but are a little way behind.” She also points out that other mobile payment-enabled handsets are ready to hit the shops including Nokia.

Against this backdrop Hingston sees the existing financial heavyweights including HSBC - and the mobile networks - making further collaborative moves into m-commerce. This will be music to the ears of Gregory as he says the whole industry needs to push forward as only this will change customer perceptions of mobile payments. “Orange is only one mobile company and we’ve a wide audience base but we are not big enough to change these perceptions. Other banks will need to make NFC payments more prevalent,” he suggests.

Both Hingston and Gregory agree that one of the challenges is to raise the awareness among consumers and retailers of the benefits and convince them of the security aspects of m-commerce. “The right research needs to be done and all types of questions (from consumers and retailers) need answering,” suggests Hingston.

Paul Makin, head of mobile money at Consult Hyperion, suggests the best way to raise awareness and answer customers’ concerns is to get them using the solutions. He believes one thing that might help them jump onboard is one of the current limitations of the m-commerce infrastructure - the ability of mobile SIMs to only hold one active payment application that is linked to a single issuing bank.

This has meant the early solutions - Barclaycard included - involve pre-paying deposits onto the phone via an app rather than having it linked to a customer’s bank account. This clearly opens up the solution to a much broader audience.
The single account issue is simply the first stage of mobile payments and will be overcome in time, according to Nordlund, who says it is these sorts of issues that are currently being worked out between the various parties: “The banks want to work with all the mobile operators and have an open platform. It’s silly to apply something to only one set of customers.”

What Makin and Nordlund do not see as a problem is the proliferation of NFC/contactless terminals in-store as Makin says: “We don’t need to worry about that as there are 40,000 locations with terminals now and it’s ramping up significantly.” What is undoubtedly an issue is the education of merchants in how to use the contactless terminals.

This education and deployment of terminals is an important step for the financial services industry as it pushes NFC-based mobile payments as the way forward rather than any of the ‘remote’ solutions that are being offered (or rumoured to be about to launch) from the likes of Apple, Google, and Amazon.

Gregory says NFC is a much lesser leap forward in terms of mobile payments than some of the other innovative solutions that are starting to be put forward. Nordlund suggests: “Remote type payments have a role too but for quick straightforward payments at the PoS NFC is the way. Of all the mobile payment methods that have been tried over the last 15 years none has succeeded because they are not compliant with the existing financial infrastructure. This is why NFC is the winning way.”

However, Makin says the existing financial players may have some competition for the ‘unbanked’ population who he believes could be targeted by the new entrants because these individuals have no relationship with the existing financial eco-system.

One player that is not steeped in financial services history but is making progress is PayPal. Cameron McLean, general manager of merchant services at PayPal UK, likes to suggest that his company is simply one option in terms of consumers’ ways to pay. “NFC is just one part of the puzzle...and the standards are evolving. We want to allow consumers to transact wherever they choose. It’s not about technology. It’s about retailers and consumers,” he says.

Although PayPal has built its business around online payments it has recently dipped its toe into linking its solution with the physical world - in a global first it has provided a solution for the Pizza Express chain that enables customers to pay their bill by mobile phone by linking their device to the restaurant chain’s PoS.”We believe it will be tried by various retailers and my team is focused on (more) retailers doing this,” says McLean.

With many such innovations taking place from newer players and the established operators now positioning themselves for a world of ubiquitous mobile payments, these are truly exciting times in the financial services industry.

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